Tuesday, March 20, 2012

Significant debt write-downs

Phoenix Capital Research predicts the Euro won’t survive 2012. So does James Quinn in his annual forecast among many others.

Most prognosticators deliberately provide a fuzzy time frame with their forecasts. It is prudent to do so. The prediction is likely true, although whether it will occur in 2012 or not is debatable.

There is great staying power for governments and institutions. They always take longer to die than reasonable estimates suggest. Extra longevity comes from their ability to ignore laws and contracts and utilize coercion on their citizens in the form of increased taxation, capital controls and often outright confiscation. Will the Euro die? Yes. Will it die in 2012? It may well do so, although be ready for whatever means possible to avoid that ending. The elites and their cronies are powerful. They have no interest is seeing the Euro die.

With that reservation in mind, here is Phoenix Capital Research’s take:

The Euro-zone in its current form is in its final chapter. Anyone who argues otherwise is not paying attention.

Consider the Greek situation. Greece’s debt problems first made mainstream media headline news at the beginning of 2009. The IMF/ EU/ ECB/ and Federal Reserve have been working on this situation for two years now. And they’ve yet to solve anything: after two bailouts, significant debt write-downs, and numerous austerity measures, Greece remains bankrupt.

Now, if the Powers That Be cannot solve Greece’s problems… what makes anyone think that they can address larger, more dangerous issues such as Italy or France, etc?

Consider that the world’s central banks staged a coordinated intervention in November… and Italy’s ten year is back yielding more than 7% less than two months later. Again, a coordinated intervention by the world’s central banks bought less than two months’ time for Italy.

And now we find the debt contagion spreading to France:

French Debt Costs Rise at Bond Sale as AAA Decision Looms

France sold 7.96 billion euros ($10.2 billion) of debt, with 10-year borrowing costs rising in the country’s first bond auction of the year as credit-rating companies threaten to cut the nation’s AAA grade.

The government sold 4.02 billion euros of the bonds maturing in October 2021 at an average yield of 3.29 percent, from 3.18 percent on Dec. 1. The euro fell to its weakest level against the dollar in 15 months, and the extra yield investors demand to hold French 10-year bonds instead of benchmark German bunds widened to the most in about six weeks.